CURRENCY: The RBNZ this morning is not expected to materially affect the currency. A less dovish statement or higher than expected bill track could see the NZD rise. European events are still dominating although their effect on the NZD is diminishing.

RATES: Kiwi rates are expected to open broadly unchanged ahead of this morning's June MPS.

REVIEW

CURRENCY: A very quiet 24 hours. With the late New York session providing the move of the day with a quick 50 pip sell off. Price action indicates that the market is still scared of the downside whilst ultimately expecting the NZD to appreciate.

GLOBAL MARKETS: Markets consolidated overnight, with headline watching and markets range trading ahead of the Greek elections. The USD generally weakened, and media reports that the Bundesbank was looking to diversify its reserves gave the AUD a boost. Eurozone, UK and US equities were broadly unchanged from the previous session, and have continued to tread water over the past week. UK and Eurozone government bond yields rose, with reasonably uniform rises across the Eurozone economies. Weaker than expected retail trade data contributed to a rally in US Treasuries, with the US 10-year yield down 6bps from the previous close, at the time of writing. The CRB index fell 0.5%, with larger falls for natural gas and oil. Gold prices firmed 0.4%.

KEY THEMES AND VIEWS

PRESSURE ON ITALY AND SPAIN: Spain and Italy appealed to European policy makers to step up their response to the financial crisis after the ?100bn lifeline for Spanish banks failed to calm markets. Spanish PM Mariano Rajoy published a letter to EU leaders calling for the ECB to buy debt from the countries struggling to shore up their finances. Italian PM Monti noted that Europe faces a "crucial" moment. The recent lift in yields has effectively wiped out the effects of ?1tr+ in cheap ECB loans to Eurozone banks via the LTRO's. We are back to square one, with the market's appetite for southern European debt drying up. The answer is growth, but with the April slump in Industrial production suggesting recession is near, a debt spiral is looming.

JUNE RBNZ MPS AT 9AM. No change to the OCR is widely expected. Whilst the tone of the statement is expected to be more dovish than April, it is expected to demonstrate the high hurdle to OCR moves in either direction given the RBNZ's comfort over the inflation outlook, large degree of policy traction, uncertainty over the global outlook and impact of the still high NZD. The published interest rate projections are likely to signal a delayed start to OCR increases, and a lower OCR endpoint.

OTHER EVENTS AND QUOTES

� Germany sold ?4.04bn of 10-year bunds at an average yield of 1.52% (vs. 1.47% at May 16 auction). Italy's borrowing costs rose to 3.972% for ?6.5bn of 1-year Treasury bills (2.34% in May 11), at a bid cover ratio of 1.73.

� Fitch: "The indirect impact of a Greek redenomination on banks throughout the Eurozone could be severe, most notably in program countries as well as Spain and Italy. A robust response from policymakers would be required."

NZD/USD: Stable?

Barring a surprise the MPS is unlikely to have any short term currency implications. The message is expected to be low rates for longer rather than lower rates, and the kiwi is driven by global events.

Expected range: 0.7720 - 0.7810

NZD/AUD: NZD has an edge ?

NZD just holds the 78 level overnight as we go into the RBNZ. A reiteration or moderate reduction in the bill track would be enough to refocus people on the rates differential story, a story that points higher for this cross.

Expected range: 0.7780 - 0.7835

NZD/EUR: Glad we are not European?

Further topside moves are more likely on this cross, but big moves either way are possible as we approach the weekend event risk. Euro-centric factors like the Italian Bond auction and debt level announcements will drive this cross as well as the ever present Greek election.

Expected range: 0.6140 - 0.6255

NZD/JPY: Safe haven v risk?

Big moves are possible, safe havens are expected to be in demand over the next few days with JPY considered to be the "safest". Don't forget the BOJ though, as they have a mandate to suppress excessive moves.

Expected range: 61.20 - 62.10

NZD/GBP: Is GBP the new Europe safe haven?

Data from the UK has been weak and the BOE is likely to consider further asset purchases, however GBP has been strengthening despite this on a dubious European safe haven rational. Expect GBP to weaken again.

Expected range: 0.4980 - 0.5050